The latest list of favored taxation and privileged fiscal regimes countries and dependencies announced by the Secretary of the Brazilian Federal Revenue Office (Receita Federal do Brasil – RFB), through RFB Normative Instruction nº 1037, of June 4, 2010, which included Switzerland as a favored taxation jurisdiction and the Dutch Holding Companies as privileged fiscal regime entities, disliked many people who did not agree with such classification!
For this reason, by means of RFB Normative Instruction nº 1045, of June 23, 2010, the Brazilian tax authorities decided to permit the affected offshore jurisdictions to apply for the request of the review of their classification as favored taxation or privileged fiscal regime country or dependency. This new measure came into force on the following day (June 24, 2010), after its publication in the Official Gazette of the Union (Diário Oficial da União – DOU).
The review request mentioned herein must be sent by the representative of the foreign government of the interested country or dependency and addressed to the RFB´s Secretary, together with proof of the content and effectiveness of the applicable tax legislation that justifies the review of the corresponding classification. It can be received with suspensive effect at the discretion of the RFB´s Secretary. Both the granting of the suspensive effect and the result of the analysis of the review request shall be formalized by means of an Executive Declaratory Act (Ato Declaratório Executivo – ADE) issued by the RFB´s Secretary and published in the DOU.
Furthermore, RFB Normative Instruction 1045/2010 clarified that the privileged fiscal regime status is applied: (i) in the case of Denmark, the regime applied to the entities incorporated in the form of holding company (Danish Holding Company) which do not exercise any substantive economic activity; and (ii) in the case of Netherlands (Holland), the regime applied to the entities incorporated in the form of holding company (Dutch Holding Company) which do not exercise any substantive economic activity. Therefore, the Danish or Dutch Holding Companies which have a substantive economic activity do not fall into this category.
Based on RFB Normative Instruction 1045/2010, Switzerland and Netherlands already decided to use this prerogative. The Danish Government requested the review of the status of the Dutch Holding Companies, for the purpose of being excluded of the privileged fiscal regime status, and the suspensive effect was granted by means of ADE nº 10, of June 24, 2010. The Swiss Government also requested the review two exclude Switzerland of the status of favored taxation country and the suspensive effect was granted by means of ADE nº 11, of June 24, 2010. Both acts have been published in the DOU of June 25, 2010 and are in full force and effect.
It should be noted, however, that this suspension is only temporary and its effectiveness will cease at any time, if and when the RFB concludes that the challenged classification should be maintained and denies the review request. For this reason, to avoid any undesired surprises, it is advisable to wait to structure any transaction originated from Switzerland or having as a vehicle a Dutch Holding Company with no substantive economic activity, until this matter is finally defined by the Brazilian tax authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
